Filing Chapter 13 Bankruptcy to Avoid Foreclosure

In a financial disaster, the first concern on most homeowners’ minds is keeping their house. As a homeowner, your house is a significant investment, with a great deal of value – salvaging it should definitely be one of your main considerations. When it comes to bankruptcy, homeowners often want to know how a bankruptcy will impact their ability to keep their home amidst financial chaos.  This article will provide more information about what happens in a Chapter 13 bankruptcy when a homeowner is facing foreclosure.

What Happens During Foreclosure?

Foreclosure is the legal process that allows a lender to take possession of a debtor’s home when they fail to keep up on their mortgage payments. When you fall into significant arrears on your mortgage, especially in the case of more than four missed payments, your lender can initiate the foreclosure process. Soon after the process has been officially started, you will be provided with a notification, at which point you have some months to make decisions about how to proceed. Although there are usually other more beneficial alternatives to bankruptcy to try first, sometimes Chapter 13 bankruptcy can be the best course of action in order to avoid foreclosure.

What is the Immediate Effect of the Chapter 13 Bankruptcy?

After you have officially filed your petition for Chapter13 bankruptcy, the bankruptcy court will issue an automatic stay. The automatic stay prohibits creditors from undertaking any collection activities against you, including collection calls, lawsuits, and mail. In general, the automatic stay will remain active for several months as your bankruptcy is being processed, during which time the foreclosure sale cannot take place. This temporary stop of the foreclosure can provide you the time you need to make decisions that will allow you to keep your house. The only exceptions to this rule are when the lender specifically gets the bankruptcy court’s permission to proceed with the foreclosure sale or has already filed a foreclosure sale notice and scheduled the sale of the home.

Will Chapter 13 Help Me Keep My House?

Whether or not you get to keep your home ultimately depends on your case. The Chapter 13 repayment plan allows you to propose a repayment plan where you can pay back the missed payments on your mortgage. However, this will require you to have a source of income – and you’ll have to pay more than your base mortgage payment to catch up on the missed payments. If your income that allows you to do that, and you can keep up with the repayment plan for its duration, you can avoid foreclosure and your house will be yours to keep.

Hiring a Chapter 13 Bankruptcy Lawyer

If it sounds like Chapter 13 might be a good option for you, it is imperative that you first speak with a lawyer before making any decisions. Especially when it comes to foreclosures, there are many possible scenarios to evaluate and considerations to make. It is very possible that another alternative (such as short sale or negotiation) could better suit your needs. Contact a bankruptcy lawyer or foreclosure lawyer to get the professional help you need.